Supply Liquidity to Aave via Mento Reserve

Mento Reserve supplying assets to Aave

This proposal represents a significant milestone as it marks the first opportunity for Celo community members to actively participate in Mento governance. Following a previous proposal that distributed 25 million $MENTO tokens to the Celo community (now locked as veMENTO), community members have gained governance rights. Upon the execution of this proposal, Celo approvers will implement the community’s decision through Mento governance.

The details of this distribution of 25 million $MENTO tokens to the Celo community can be found in this forum post, along with the process of how voting will work.

Proposal Key Aspects

  • Receiver Entity: Celo Governance
  • Status: FINAL
  • Title: Mento Reserve supplying assets to Aave
  • Author(s): Mento Foundation
  • Type of Request: Mento Proposal
  • Funding Request: N/A

Summary

Aave V3 will be launching on Celo in Q1’25. As Mento is currently the largest protocol on Celo, Mento is incentivized to help foster a robust and thriving DeFi market in the ecosystem. Mento Labs is proposing that the Mento Reserve will be granted the ability to supply up to $2.5M (cUSD, cEUR… equivalents) to any Aave market at any time post-launch on the Celo network (Aave Governance Forum Post). This includes but is not limited to cUSD, USDC, USDT, cEUR, (w)ETH, CELO, and any other markets that may launch in the future.

Motivation

The motivation for Mento and its stakeholders is multi-faceted:

  1. Yield on reserve assets: supplied assets will generate a floating rate yield (based on utilization rate), helping the reserve maintain a healthy growth rate.
  2. Create added utility for users’ assets: Mento users will have the ability to borrow Mento stablecoins against their assets that they supply to Aave, a core DeFi primitive
  3. Addition of new Mento markets: As Mento launches more stablecoins as part of its core strategy, Mento will be able to create markets for them on Aave if the existing markets are successful

Specification

$2.5M cUSD equivalent can be allocated per Aave market (asset) at the discretion of the Mento Foundation - which manages the Mento Reserve.

It can be rebalanced at any given time at the sole discretion of the Mento Reserve management based on any criteria as mandated by the Mento Reserve and its governance body.

Risks

Supplying liquidity does not come without risks. Some that should be noted (but not limited to) are:

  1. Smart-contract risk: Every DeFi protocol and smart contract is exposed to malicious attacks on the smart contract (bugs or other vulnerabilities), which may lead to the loss of funds. It is worth noting that Aave V3 has never been successfully hacked by a malicious actor
  2. Price-oracle manipulation: Oracles outside of Aave (and Mento) are exposed to manipulation, which could lead to malicious actors technically or economically attacking funds
  3. Opportunity cost: There is an opportunity cost associated with supplying funds to Aave as there may be more attractive risk-adjusted returns on other venues.
  4. Counterparty risk: As Aave has no central governance, there is a risk of governance attacks on the protocol and other forms of counterparty risk.
  5. Utilization risk: If the Mento assets are in high demand (i.e., highly borrowed), withdrawals can become slow. This is why the Mento reserve is capping the supply of liquidity at $2.5M and continuing to overcollateralize the outstanding stablecoins.

Metrics and KPIs

ROIC - Return on Invested Capital

  • Yield generated for the reserve

Current Status

New proposal

Timeline and Milestones

Mento Reserve will allocate funds at its discretion upon the launch of Aave and approval

Detailed Budget

N/A

Payment Terms

N/A

Team

Mento Foundation will manage the supply of assets

Additional Support/Resources

N/A

5 Likes

FranklinDAO supports this proposal. We believe Mento’s reserve assets should be put to use, and supplying liquidity to Aave is a relatively safe use of funds. It will also help kickstart lending on Celo. However, starting with a $2.5m cap for every asset seems a bit high, given that only cUSD and cEUR exceed $2.5m in Mento’s reserves.

2 Likes

Thanks @bayological and team for the proposal, at my end this proposal is fulfilling all the requirements:

  • Post a proposal in the Celo Forum and leave it for discussion at least for seven (7) days.
  • Present Proposal in a Governance Call and address the feedback received: Proposal was presented during Celo Governance Call #64 | March 20th, 2025

With the above said, from my end the proposal is ready to move into the voting phase when proposer wants to move forward or consider is appropriate.


:bangbang: Remember Current Celo Governance Overview & Procedures

To proceed to the submission and voting phase at least two Celo Governance Guardians must post explicitly that the proposal fulfills the requirements to be able to move into the Voting Stage in the proposal thread on the Celo Forum.


Remember next steps

  • Submission of PR to Celo Governance Repository
    Proposers needs to fork the Celo Governance Repository and add a PR including the proposal .md file and json file.
  • Approval of PR by Celo governance Guardians and merge into main branch of Celo Governance Repository.
    Celo Guardians are responsible for conducting a comprehensive review of every Pull Request (PR) to ensure that there is complete alignment and consistency between the final proposal posted in the forum post and the specific files that are being requested to be merged.
    This review process is strictly technical in nature, focusing solely on verifying the authenticity and good faith of the proposers. It does not involve any personal opinions or biases regarding the merits or content of the proposal itself. To maintain the integrity of the Celo Governance repository, it is mandatory to obtain approval from a minimum of two Governance Guardians for each PR before it can be merged into the main branch.
  • OnChain Submission of Proposal
    After PR is merged into main Governance Repo the proposers needs to fork locally the Celo Governance Repository and submit the proposal onchain using the guidelines described in the Celo Docs.

CC: Governance Working Group (@annaalexa @Wade @0xGoldo)